Economic survey by Credit Suisse in cooperation with the Centre for European Economic Research (ZEW)

Economic survey by Credit Suisse in cooperation with the Centre for European Economic Research (ZEW)
Prevailing poor economic picture, with somewhat better expectations
Zurich, February 19, 2009
The Financial Market Test Switzerland, carried out by Credit Suisse in cooperation with the Centre for European Economic Research (ZEW), reveals once again that the prospects for the Swiss economy have brightened up just slightly on a six-month horizon. Accordingly, the Credit Suisse ZEW indicator of economic expectations edges up by 9.0 points to the -57.7 mark in February. At the same time, however, the indicator for the assessment of the current economic situation dips by 4.6 points to the -45.3 level. Less than 6% of the survey participants anticipate that short-term interest rates will rise in the medium term. The proportion of respondents who forecast a further reduction in the already low interest rate level declines noticeably to 35.8% (-18.9 percentage points), while 58.8% of the analysts foresee short-term rates holding steady. Moreover, 66% of the financial market experts continue to expect the inflation rate to retreat further. Nevertheless, overall inflation expectations increase somewhat in February, with the relevant indicator picking up 8.3 points to reach the -58.4 threshold.

The results of the February survey conducted in conjunction with the Financial Market Report Switzerland reveal that economic expectations look slightly more positive compared with the previous month, but continue to hover noticeably in negative territory. Accordingly, 67.3% of the financial market experts surveyed view continuing deterioration of the Swiss economy on a six-month horizon as a likely scenario. The share of respondents who anticipate that the economic outlook will brighten up in the coming half-year increases by 7.7 percentage points to 9.6%. The Credit Suisse ZEW indicator of economic expectations therefore edges up by 9 points to the -57.7 mark.

The weak picture painted by the financial analysts assessing the prevailing economic situation in January is manifested in this month’s survey results as well. Still none of the specialists views the current economic environment in Switzerland in a favorable light. On the other hand, 45.3% of the participants regard the present economic climate as “bad.” The relevant balance declines again by 4.6 points and is hovering at an all-time low point of -45.3.

The balance of indicators for short-term interest rates in Switzerland rises by 18.9 points to reach -30.2. The majority of experts (58.5%) forecasts no change in rates. However, 5.7% of the respondents still expect short-term interest rates to climb in the next six months, while 35.8% of the analysts predict that rates will decrease. Regarding long-term interest rates, 28.3% (up 11.3 percentage points) of the survey participants foresee an impending increase, while 52.8% (up 1.9 percentage points) see no change in rates.

In the wake of the notable retreat in inflation rates in Switzerland in past months, consumer prices recorded a renewed decrease in January, dipping to the 0.1% level. In a six-month timeframe, 66% of the respondents regard a further drop in inflation rates as the most probable scenario. In contrast, 26.4% of the analysts believe that inflation will hold steady at the same level, while 7.6% anticipate rising inflation. The corresponding balance for the inflation rate thus increases by 8.3 points to the -58.4 mark in February.

With regard to the trend in the Swiss franc, a somewhat higher proportion of experts (43.4%) predicts that the currency will gain terrain against the euro. On the other side of the coin, 20.8% of the financial market specialists see the franc losing ground, while a good one-third of the participants (35.8%) expect no change in the CHF/EUR exchange rate. Accordingly, the relevant balance rises by 11.5 points to the
22.6 level.

Turning to commodity prices, 40.4% of the respondents forecast an increase in oil prices, compared with 53.8% of analysts who foresee stagnating prices. Merely 5.8% of the experts are looking for a declining trend in oil prices. Opinions on the part of survey respondents regarding gold prices hardly changed at all versus the previous month, with the corresponding balance edging down marginally by 1.3 points to the 34.0 mark.

The lion’s share of participants (86.5%) still regards deterioration of the corporate earnings situation as the most likely scenario. Only 3.8% of the analysts believe the earnings picture for Swiss companies will brighten up in the coming six months. And finally, 96.2% of the specialists view the labor market situation in a pessimistic light and expect the unemployment rate to grow. Not one of the experts surveyed foresees a favorable trend in the jobless rate in Switzerland on a six-month horizon.

Within the scope of this month’s “special question,” participants in the Financial Market Test Switzerland were asked to convey their forecasts regarding the future trend in various economic sectors in Switzerland for the year 2009. Against the backdrop of the prevailing difficult economic situation the experts believe that firms in the telecommunications sector and companies in the agriculture sector are more favorably positioned compared with the other sectors.

The survey process and methodology
The ZEW has conducted a similar monthly survey for Germany since 1991. The aim of the Swiss survey is to develop indicators both for Switzerland’s general economic climate as well as for the Swiss services sector.

Specifically, survey participants are asked to give their medium-term expectations for important international financial markets as regards the development of the economy, the inflation rate, short- and longer-term interest rates, equity prices and exchange rates. In addition, the financial experts are also asked to assess the earnings situation of companies in the following Swiss services sectors: banks, insurance, consumer/retail, telecoms and services as a whole.

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